Streetscape Projects (Australia) Pty Ltd v The City of Sydney

Judgment 1HIS HONOUR: This is a notice of motion filed on 20 February 2012 seeking stay of orders made by Einstein J in the Equity Division pending the hearing of an appeal. The notice of appeal was filed on 16 February 2012. 2The dispute between the parties centred on the claim by the City of Sydney that the appellants had sold "Smartpole" poles overseas in breach of a licence agreement. 3The case below was complicated and was heard by his Honour over 50 days during 2011 and his Honour gave judgment on 11 October 2011 ([2011] NSWSC 1214). There was further discussion as to the orders that should be made and Einstein J gave a supplementary judgment ([2012] NSWSC 10) on 1 February 2012. 4The orders made included injunctions against the defendants manufacturing, distributing, offering for sale or selling certain poles, delivery up of documents and moulds and money judgments. This lastmentioned involved judgment against Streetscape Projects (Australia) Pty Ltd and against Moses Edward Obeid for $12,123,500.00. 5The principles to be applied on this sort of application are not in doubt, both counsel agreed on them and all I need do is to refer to the decision of Alexander v Cambridge Credit Corp Ltd (1985) 2 NSWLR 685 where they appear. 6The motion was considered on the basis that there was nothing to suggest that there were not arguable grounds of appeal, so that the issues appear to be confined to the question as to whether the appellants can pay all of the judgment sum or alternatively should pay some money as the price of a stay. 7In order to consider this question, the Court was furnished with 10 lever arch files of financial material relating to the appellants and a couple of hours was spent in cross examination of the second appellant and one of his brothers. 8The notice of motion came on for hearing before me on 28 February 2012. After some discussion it was adjourned until 15 March on which day the hearing was concluded. Mr S Couper QC with Mr J V Gooley and Mr R M Higgins, appeared for the applicants. Mr A Sullivan QC and Mr S W Climpson of counsel appeared for the respondent. 9Apart from the evidence relating to the financial means of the appellants, the Court was informed that a bankruptcy notice had been issued against Mr Moses Obeid and a statutory demand against the appellant company, but both had been stayed pro tem. 10In their written submissions, page 12, counsel for the appellants say: The consequence of a failure to stay these orders are likely to be insolvency for the First Appellant and bankruptcy for the Second Appellant. These are significant consequences. Unsurprisingly, neither of the Appellants have the resources to pay the judgment, which was for a very significant sum ... In contrast to this, the Respondent is a large statutory authority. There is no readily apparent reason why it requires these funds immediately. The only prejudice that the City has led any evidence in support of is its claim that it will delay payment of final judgment in circumstances where interest is unlikely to be received. This claim is premised on the notion that if the judgment is not stayed, the Respondent will be paid now, but if the judgment is stayed, the Appellants will be unable to pay after the appeal. The Respondent cannot have it both ways. Either the Appellants can pay or they cannot, and the evidence establishes that they cannot. The balance of convenience clearly favours the Appellants. 11It is further put that if a stay is not granted the appellants' appeal may be rendered nugatory. 12Mr Couper put that the whole of the evidence before me showed that neither appellant could pay the judgment. Neither appellant has $12 million or anything near that sum available to him or it. 13Mr Sullivan put that the appellants were seeking a privilege and indulgence from the Court and it was necessary for them to come before the Court and display candour. Mr Sullivan put (T54 of 15 March): Your Honour would be entitled from seeing Mr Moses Obeid and Mr Paul Obeid in the witness box to think that they deliberately lied to your Honour on their oath. 14Mr Sullivan gave examples. 15Mr Sullivan continued (T55): When you are dealing with someone who has been found on his oath to have lied to the Court, that's the exact finding that Justice Einstein made, with great respect, that's not good enough. Your Honour starts with the premise that his Honour's judgment is correct, especially when as it comes out of the woodwork today, serendipitously for us on the subpoenas that somehow or other in 2006 just by coincidence in respect of a loan from Mrs Nicole Obeid, someone talked about Streetscape expanding its business into Dubai for the sale of smartpoles. The explanation given for that was your Honour might find completely unconvincing and indeed a lie, in our respectful submission, namely that the very computer savvy bank manager must have looked it up on the internet and connected it himself. 16An alternative explanation is that the bank manager was in on some conspiracy to keep the real facts from his head office, a conclusion that I would have certainly not reached without giving the opportunity for an explanation to be given by people adversely affected by a finding on this matter. 17Some of the evidence given by Messrs Moses and Paul Obeid was obviously wrong. When they were confronted with documents it is apparent that they had to concede that their evidence was wrong. The fact that Justice Einstein disbelieved the Obeid evidence at the trial is of some moment, but not completely convincing because his Honour's findings are the subject of challenge. The fact that I was not told the truth in the evidence given in cross examination is significant. 18I was presented with 10 lever arch folders full of figures including reports from accountants as to how the two appellants do not have funds to meet the judgment. The cross examination of the Obeids show that what I might, perhaps disrespectfully, call the Obeid Family Empire, has structured itself in a way to make it extremely difficult to find out exactly what is the worth of any particular member of the family. However, it is clear that a large amount of money is generated by various parts of that empire, almost all of which finds its way into the Empire's treasury, which is Obeid Corporation No 1 as trustee of the Obeid Family Trust No 1. 19There are a number of trusts and sub-trusts. Most of these are discretionary trusts and, of course, the advantage of a discretionary trust for families which trust each other implicitly, as it would appear this family does, is that no-one can say that any particular member of the family has any property, yet the favourable exercise of discretion will enable that family member to live sumptuously. As is the case with family trusts set up to keep assets from wives, these trusts can be dismantled by the simple expedient of the Court removing the trustee and appointing an independent person. However, that step, if it is to be taken at all, is a long way off, and even if it is taken, will not necessarily vest assets in favour of either of the appellants which can be taken by their creditors. 20Mr Sullivan puts that an applicant for stay that is not candid with the Court should not be rewarded with a stay. One normally meets the obligation of candour when a party is making an ex parte application for an injunction and the rule is clear that if a party obtains an injunction through lack of candour, the injunction will almost always be set aside on that ground alone, see Edison Ltd v Bullock [1912] HCA 72; 15 CLR 679. 21But the principle goes wider than that as Chitty J said in Re Imperial Continental Water Corporation (1886) 33 Ch D 314, 317. In any ex parte proceeding the Court requires that there should be full disclosure of the circumstances and particularly of those circumstances which are adverse to the party making the application. Davies J, in the Federal Court, said something very similar in Milcap Publishing Group AB v Coranto Corporation Pty Ltd (1995) 32 IPR 34 at 35. His Honour said: When an ex parte order is sought, the person seeking the order must be frank and disclose to the court all the matters which, if put before the court, might have an effect upon the court's decision. 22Now those authorities deal with ex parte applications. So far as stays are concerned, the only relevant authority that I have found is the English Court of Appeal's decision in Hammond Suddard Solicitors v Agrichem International Holdings Ltd [2001] EWCA Civ 2065; All ER (D) 258. In that case the appellant was a British Virgin Island company with a PO box address in Jersey and no assets within the United Kingdom, or as the judges said at [2]: "as it would have us believe, anywhere else." 23The case was heard before Clarke LJ and Wall J. The Court said there were two points in the case, first, whether it is permissible when granting leave to appeal to make it conditional upon payment of the judgment debt and costs, and second, "whether it is appropriate to do so in a case where, as here, the appellant might have to obtain the funds to meet the various orders from a third party" ([3]). 24On the application for stay, a director gave an affidavit that privately owned British Virgin Island companies were not required to produce accounts, but that the company was in dire financial straits. The judges were not impressed with this. They said at [14]: While it may very well be the case that the law of the British Virgin Islands does not require the appellant to produce accounts, this does not mean that they do not exist. Given the scale of the appellant's business transactions ... it is inconceivable that accounts do not exist. It is therefore wholly unacceptable for this Court to be told, on such an application as the present, that the only document that the Court is to see is a single sheet of paper produced for the purposes of the application and the Court must accept this as sufficient evidence of the appellant's financial position. 25The judges held that the onus was on the appellant to satisfy it that there was a real risk of injustice unless a stay was granted. 26That decision was not referred to during argument, and in accordance with usual practice, my Associate informed counsel that I thought it of significance and indicated that I would receive further submissions on the point if anyone wished to make them. 27Counsel for the appellants said, as was true, that the actual decision in Hammond Suddard was fact specific and that the facts in the instant case were quite different. In particular in the instant case, as opposed to Hammond Suddard, there were 10 volumes of accounting documents, not just a bare statement from an officer. 28Two things should be said about this submission. First, the significant aspect of Hammond Suddard was the method of approach to the problem adopted by the English Court of Appeal. The second is that much of the 10 volumes of material in the present case was generated from the unreliable evidence of Messrs Moses and Paul Obeid or from data supplied by other members of the family, the accuracy of which is untested. 29The respondent did not make any significant submission on the point. 30The Court of Appeal in Cambridge Credit also made it quite clear at 697 that a person "seeking the benefit of a stay and, if they are entitled to it, having shown a reason or demonstrated an appropriate case, they must still provide the Court with the material upon the basis of which the Court can fix the terms of the stay that will be just to both parties." The Court went on to say that the material as to the assets and liabilities should be placed before the Court in a direct form so that if necessary it could be tested by cross examination. 31In the instant case, loads of material were presented to the Court, but the cross examination showed that a lot of it was unreliable. 32What did appear fairly clearly from the evidence was that neither appellant had $12 million to satisfy the judgment. However, the material also showed that Mr Moses Obeid and his wife, though they had few personal assets and limited income, were living very well indeed. They were living in a house in a superior suburb which Mr Moses Obeid's wife had acquired for $4.5 million in 2010. The house was in her name. The $4.5 million was supplied as to $2.5 million by the National Australia Bank, and $2 million said to be a loan from the Obeid Family Trust. However, the bank was told that it had been a gift. Mrs Obeid's income was completely insufficient to pay interest on the borrowings, and this was met by the Family Trust which also was kind enough to provide sufficient monies for the Obeids to have a maid. 33In the light of the dogmatic statements made by Mr Paul and Mr Moses Obeid in the witness box which had to be retracted when documents were shown to them and the misstatements made to the lending authorities with respect to the home of Mr and Mrs Moses Obeid, I can have very little confidence in their evidence. 34Mr Couper says that Mr Obeid clearly said that he did not have the money, and I should accept it. I do accept that he has not got $12 million, but I am not convinced that the way the Obeid family fortunes are structured, it is not available to him. 35Mr Couper says that that is a very loose way of looking at the evidence. Mr Couper points to the fact that there are trustees of discretionary trusts, there are a number of beneficiaries, and that it is a matter for the trustees to decide how capital gifts and loans should be provided and income provided and it could be that they will favour Moses Obeid and his family or some other members of the Obeid family. There is, of course, force in that submission. However, the onus is on the Obeids to show what the true situation is. Their oral evidence is unreliable. The figures produced by the accountants are dependent on what the accountants were told, and although I would not go quite so far as Mr Sullivan's submission that the BDO report is "rubbish in rubbish out", there is some truth in that submission. The history of the Obeid Family Trusts' administration tends to show that Mr and Mrs Moses Obeid and their family will be well supplied with cash if and when needed. However, I do not need to make a finding of this because it is up to the appellants to show that that is not so. 36It should also be noted that in the case of one trust, which apparently is earning significant income where Mr Moses Obeid appears to have control, there has been no attempt to direct funds to himself, rather the income has swelled the coffers of Obeid Corporation No 1. 37It is significant that in the analogous situation of an application for security for costs, where the applicant says he is without means, the applicant needs to show that not only is the applicant without means, but so are those that stand behind him; see eg Bell Wholesale Co Ltd v Gates Export Corp (1984) 2 FCR 1 at 4. 38Where a family organises their affairs in a very complicated way, that may be very advantageous fiscally and may be protection against creditors. However, when they have to show a court that they are virtually impecunious, the fact that there is a complicated trust structure with discretionary trusts, where it appears that the people whose means are being examined, are in the words of Mr Thackeray's Vanity Fair, exploiting the doctrine "How to Live Well on Nothing a Year", then they should not be surprised if the court is unable to find that they have made a full and frank disclosure of their assets and are unable to pay the judgment. 39Accordingly, in my view, the application fails and must be dismissed with costs as the appellants have not established the key fact to my satisfaction on the balance of probabilities. This being so, I cannot make an order that it would be appropriate that there be a stay if a percentage of the $12,000,000 was paid into Court. 40I thus order that the notice of motion be dismissed with costs.